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Flashcards in Leases and NFP Accounting Deck (31):
1

How is a Capital Lease recorded?

Capitalize at cost: Asset & Liability Recorded at Present Value of Future Lease Payments

2

What footnote disclosures are required for a Capital Lease?

Future minimum rental commitments

By year - for 5 years

All remaining years as a group

3

What are the requirements for a Capital Lease for a lessor?

Same as for lessee (Title- BPO or Substance)- PLUS:

Collectability of lease payments is predictable

No uncertainties about the lessor reimbursing the lessee for costs incurred

4

What are the characteristics of an Operating Lease for a lessee?

Risk of ownership does NOT pass

No asset or liability is recorded on the financial statements

Leasehold improvements - capitalized and depreciated over the lesser of lease life or leasehold improvement's life.

5

What are the characteristics of an Operating Lease for a LESSOR?

Rent revenue recorded

Leased property remains an asset and depreciated by lessor

If payments fluctuate over the term of the lease- rent revenue recognized on a straight line basis

6

What are the characteristics of a Direct Financing Lease?

Interest Revenue (or expense for lessor) decreases with passage of time

Principal amount increases with each payment

Carrying amount of Lease decreases

7

How is a sale-leaseback recorded?

Any profit on the sale is deferred and amortized

Exception: If PV of lease payments is 10% or less of the asset's FMV- the gain is recognized

If PV of lease payments is greater than 10% of FMV and the lease is operating- all of the gain is recognized except the amount of the PV of the lease payments

8

What are the characteristics of lease payments under an annuity due situation?

Payments begin at the start of the lease period

Think: Rent/Mortgage payments are Due at the first of the month

9

What are the characteristics of lease payments under an ordinary annuity situation?

Payments begin after the end of the first year

Think: An annuity that pays you at the end of each year

10

What are the characteristics of a Capital Lease for a lessee?

Risk of ownership passes to lessee by:
Title,
Bargain Purchase Option (BPO),
Substance - Lease is more than 75% of asset's useful life or PV of minimum lease payments are more than 90% of fair value

11

Which financial statements are required for not - for - profit organizations?

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Statement of Functional Expense (Volunteer Health Organizations Only)

12

What are the major classifications found on a Statement of Financial Position?

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Assets
Permanently Restricted Assets
Temporarily Restricted Assets

13

What are the major classifications in a Statement of Activities?

Similar to an Income Statement - organization - wide:

Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted

14

What are the characteristics of a Statement of Cash Flows for not - for - profits? What are the major classifications?

Both direct and indirect methods are OK

Operating Activities - Unrestricted Revenues and Unrestricted Expenses

Investing Activities

Financing Activities - Endowments and restricted contributions


15

Which organizations are required to present a Statement of Functional Expenses?

Volunteer Health Organizations

16

Which statements are required for non - governmental hospitals?

Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes

17

Which basis of accounting is used for revenues and net assets?

Accrual basis of accounting is used

Only external parties can restrict the use of assets (permanent or temporary)

Assets earmarked internally by management are still classified as unrestricted

18

What are the characteristics of unrestricted assets or revenue?

No restrictions or conditions placed on entity in order to use the resources

Note: assets earmarked internally by management are still unrestricted

19

When are revenues on contributions recognized?

Revenues on contributions are recognized in the year received - not the year the contribution is spent and are recorded at Fair Value on the date received

20

When are services rendered considered contributions?

If the organization would have otherwise paid for them

or

They increase the value of a non - monetary asset

21

Is hospital charity care revenue?

NO.

It is disclosed in the notes to the financial statements only.

22

How are unconditional pledges to contribute recorded?

Classified as revenue in the current year only - multi - year future contributions fall under Temporarily Restricted.

23

Which revenues are expenses deducted from?

Expenses ONLY deducted from Unrestricted Revenues - not Temporary or Permanently Restricted Revenues/Assets

24

What are the characteristics of temporarily restricted assets/revenue?

Use is restricted to a future time - which could then convert to unrestricted - Class: Temp. Restricted Revenue

Unrestricted contributions promised (including multi - year contributions) - but not yet received are actually restricted by time and are therefore classified as Temporarily Restricted Assets - Multi - year contributions are recorded at the present value of the future contributions

25

What are the characteristics of an endowment?

Use of investment is restricted - but income from investment could be either restricted or unrestricted

Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets

Otherwise - a memo entry is recorded

26

When is the donation of an art collection recognized as a contribution or asset?

Not recognized as assets or contribution revenue if they are held of display or education' or their sale results in the purchase of similar items

27

When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first?

Temporarily restricted assets are used before Unrestricted assets.

28

How is a refundable advance recorded by a not for profit?

Classified as a Liability

Promise to contribute assets pending on certain conditions being met

Becomes unconditional once the possibility that it won't happen is remote

29

How are investments recorded and valued in not - for - profit accounting?

Fair Value is mostly used

Exception - Equity method used when significant influence exists

30

How are scholarships recorded?

As a reduction of revenue - netted against college's tuition

31

How is depreciation expense recorded by a not - for - profit?

Depreciation expense is allocated proportionately to various functions